An assortment of all things interesting (and possibly useless) in the legal profession

Wednesday, April 27, 2011

Judge Nelson Denies Stay (or: What You Didn't Know About the NFL Lockout)

First, some preliminaries: On Wednesday evening, Judge Susan Nelson denied the NFL's motion for a stay of the preliminary injunction pending appeal. Although it was widely expected that Judge Nelson would not stay her decision, the reasons she would give for denying the stay were unclear. Now we know.

ESPN's Adam Schefter tweeted, "Judge's 20 page order takes her 89 page order from Mon and hits the major points even harder. Makes NFL's attempt to get overturned harder." I think Adam is exactly right here. When it decides whether or not to reverse Judge Nelson's order enjoining the lockout, the Eighth Circuit will be applying the same legal standards Judge Nelson did, and her opinion provides a roadmap for the appeals court's potential analysis.

In particular, Judge Nelson repeatedly notes that she is only enjoining the lockout. All of the other aspects of the plaintiffs' case -- challenges to player movement and the draft, for example -- are not the subject of the preliminary injunction order and have not been adjudicated. Why does this matter? Because although Judge Nelson is ordering the NFL to lift the lockout, she is not ordering them to put in place any particular set of rules. In her words:

With respect to the NFL’s alleged injuries, this Court finds the League’s claim of irreparable harm, absent a stay, misplaced. The League may choose to act in accordance with its expressed belief that the Players remain a union and that they have reached a state of impasse, or the League may choose to chart a different course, implementing a version of the 2010 player system, or something different altogether. This Court’s Order does not obligate the NFL to enter into contracts, nor does it proscribe the League’s non-lockout conduct in general. Like any defendant in any lawsuit, Defendants themselves must make a decision about how to proceed and accept the consequences of their decision.

I find this notable for two reasons. First, Judge Nelson is telling the league that, although it must open for business, it can choose what rules it will operate under. Second, and more interesting, she is giving the league no guidance on what rules might be illegal. Essentially, she is telling the NFL, "You have to open for business. You decide what the new rules will be, but the rules you implement might themselves be illegal. You have to make a decision 'and accept the consequences of [that] decision'".

This is big. The NFL argued in its papers that it would be harmed if the decision was not stayed, because it would be forced to implement rules that might be illegal (i.e., violate antitrust laws). Judge Nelson was not swayed by that argument.

Now to the burning question: what does this mean as a practical matter? Well, teams will probably open their facilities and let players work out, get access to trainers, use practice facilities, etc. But what about trades? It is unlikely that we'll see any player movement in the near future. The NFL will say that it needs some time to figure out how player movement might occur. Judge Nelson notes in her decision denying the stay that the NFL has been proceeding under 2010's rules in some instances (for example with regard to franchise and transition player tags). The league may well extend those rules while the litigation plays out.

No one can predict when the Eighth Circuit will rule, let alone how. But let's assume that the Eighth Circuit affirms. (Most district court decisions are affirmed, and this one will be reviewed using a standard that is quite deferential to the district court.) How will this entire mess be resolved? This brings me to the "what you didn't know" portion of the analysis.

The latest reports before negotiations fell apart were that the two sides were separated by several hundred million dollars. Although this is a lot of money, in the scheme of things, it is not an insurmountable sum. But there is a bigger issue lurking (thanks to my friend Jason Reimer for talking through some of these issues with me). Remember, the union "decertified" -- meaning it disbanded as the collective bargaining representative of the players -- before the players' lawsuit. This is because a union cannot file an antitrust suit against an employer; only the individual employees can. Apart from the money issue, the owners are likely to insist that the NFL Players Association reconstitute itself as the players' union (not just a "trade association") as a condition of settlement. The owners would likely feel -- as Commissioner Roger Goodell noted in his recent Wall Street Journal op-ed -- that the threat of litigation would hang over their every decision. To allay that very real fear, they would insist on the players forming a union.

This is not new. The last time there was a work stoppage, the owners insisted that the players' union reconstitute itself (even though it did not want to); the players agreed to this only because the owners also agreed not to challenge any subsequent decertification. (This is at pages 10-11 of Monday's opinion.)

Well we know how that worked out: the players did decertify, and the owners did challenge it. Judge Nelson has rejected those arguments for now. But if a few years from now the NFLPA plays the same trick a third time -- decertify in order to bring a lawsuit -- the owners may finally succeed on their claim that decertification reflects nothing more than a negotiating (and litigation) tactic, that decertification is in fact a sham. The players know this too, and they might fight much harder not to reconstitute the union. But their refusal to do so could jeopardize any settlement -- even if the two sides agree on dollars and cents (and concussions and preseason games) -- because the owners don't want the brooding omnipresence of litigation in the background, and the players don't want to limit their legal options in the event of a future labor dispute.

And there is yet another moving part. On March 1, Judge David Doty ruled that the NFL breached its obligation to negotiate in good faith and maximize total revenue for the league when it guaranteed revenue for itself from television contracts even in the event of a work stoppage. (Essentially, the league gave TV stations a 'discount' for 2009 and 2010, so long as they agreed to pay about $4 billion for 2011, even if there was a lockout.) The players successfully challenged this agreement, saying that the owners had a duty to maximize total revenue for each year (because that pie is what is shared between owners and players), which they breached by guaranteeing themselves, but not the players, money in a locked out 2011.

But while Judge Doty has ruled for the players, he has not said what they are entitled to in terms of damages. This number could run well into the millions. If the figure is sizable, the players will have even more leverage: they would essentially be negotiating with the owners' money! (For example, they might "give up" the TV money -- which they don't have -- in exchange for concessions in the new labor agreement.) Obviously, opportunity costs are real costs, but as a psychological matter, it is much easier to give something up when you've never had it in the first place (endowment effect).

I wrote earlier that I'm confident that we'll have football in 2011, but after giving these last two points some more thought, I'm a little less confident. In particular, I think we will see a big sticking point as to whether the union has to re-form in order for any settlement to take place. And the owners might face a multi-million dollar judgment in a few weeks, after Judge Doty rules.

I suspect that in the next few days, the league will announce that it will resume operations under 2010's rules (no salary cap; franchise and transition tags in place; etc.) Free agents may try to market themselves to teams, but even Judge Nelson's second order notes that no team is obligated to actually sign any given player. In the meantime, the Eighth Circuit will set a briefing schedule and Judge Doty will take up the damages issue in the TV revenue case. All of these goings-on in mid/late May suggest that the best time for a settlement might be in the next couple of weeks -- and if we don't see a deal by mid-May, we may have much longer to wait.

The owners have asked for an expedited appeal, with their opening brief due 5/10, the players' opposition due 5/24, and their reply due 5/31, with oral argument scheduled "as soon as possible" thereafter. So even under the proposed expedited schedule, we wouldn't get a decision for at least another month.